Holiday Retail Battle: Retailers vs. Amazon

The traditional brick and mortar retail battles are one of the more fascinating industry dynamics to observe. There is so much around the death of traditional retail that is built into Amazon’s stock price. Investors want/need to believe that Amazon will maintain their near monopoly on US and parts of Europe monopoly on e-Commerce. Amazon has the lions share of e-commerce in many markets where they compete for the percentage of e-commerce yet as a part of overall retail purchases remains remarkably low in many countries.

With all the growth hype for Amazon and e-commerce it is fascinating how, in reality, e-commerce growth is extremely modest on a year-over-year basis. Low single digits are the steady march of e-commerce’s growth as a percent of total retail. It is reasonable to assume, over the long arc of time, that e-commerce will someday be 50% of total retail sales, but this reality is looking to take much longer to happen (except for China).

For the foreseeable future, physical stores and traditional brick and mortar retail strategy will continue to exist, but it will have to continue to evolve. This is where I find the blending of online vs. offline tactic interesting and one that is proving to be extremely successful for big-box retailers in particular.

Best of Both Worlds
Blending online and offline commerce has the potential to be the best of both worlds. It is not yet, however, the potential is there. During Black Friday and at select points over the Black Friday weekend, I went to some big-box retailers and was shocked to see how much has changed since last year. Both Best Buy and Walmart had large sections of the store blocked off just to set aside the items that had been purchased online and were waiting for customers for in-store pickup. Most of the items I say, and those taking up the most space were TVs, and I was shocked to see the mountain of TV boxes waiting for customers.

I had the opportunity to engage in some interviews with these customers to better understand how they perceived the value, trade-offs and subsequent convenience of buying online and picking up in store. It was interesting to hear from customers directly about their thought process. The first thing that stood out to me as an overall part of my interviews was how it became clear there are certain products, and product categories, that will always be things they are more willing just to buy online. Things like general consumer packaged goods, the kinds of things in CVS and Walgreens for example. There are also things they will continue to want to buy in stores. For now at least, produce, groceries, and other fresh items remain physical store only categories. It doesn’t sound like that is going to change anytime soon from how I heard them talk about it.

But when it came down to why they choose the particular product they did, usually a TV but I talk to a few customers who purchased phones and some who purchased PCs, was they did not want to wait which was entirely logical. TVs, smartphones, and PCs tend to be somewhat emotional purchases, and they are the kinds of things you don’t want to wait to get. The other thing I heard over an over again concerning their TV buying has they felt the Best Buy or Walmart had better deals on a larger selection of TVs. Meaning they had more choice to find a better deal there than they felt they had on Amazon. It’s true Amazon has more aggressive deals on lesser-known brands, and often later year models, where Best Buy and Walmart had aggressive deals on known brands and current generation TVs.

Consumers are smart, and they spend way more time thinking and researching these products online to make an informed decision than I think they often get credit for. This is one of the things that stood out to me most as they were extremely informed and seemed to have vetted all their options for their purchase and, in this case, landed on buying online from Best Buy or Walmart and picking it up in store.

The experience was still not perfect, or as convenient, and it turns out. Often I heard the main reason they bought online with an in-store pickup was to avoid the lines and crowds. But it turns out the lines to pick up their purchase was sometimes longer than the one at regular checkout. This turned what should have been a convenience into a frustration. Especially because they deal these retailers were offering online were not quite as aggressive as the in-store deals. Consumers seemed to understand this and were willing to make the tradeoff for $20,$30, or even $50 bucks of savings to not have to deal with the store crowds. But in the end, they still had to deal with some of the inconvenience they hoped to avoid.

Given what I learned, and observed, I think a few things are destined to happen for retail if they are to remain competitive with Amazon. Firstly, many of them are going to have to start thinking about converting space in the store just to storing in store pick up items. This will be fascinating to watch because every inch of physical retail is usually measured in potential sales dollars, but there are plenty of shelf space areas that retailers are not selling well or will not be selling well soon. For example, why is there still such a big section for DVDs and audio CDs? Even accessories for smartphones or other tech is likely to be online only sales. Retailers will have to make hard decisions about which shelf space to give up to have a better place/solution for in-store pickup. Rethinking in store layout will be challenging for retail, but it is essential.

Streamlining the process is also essential. Perhaps something like Amazon’s Go experience where there is an automated way to go into the store, pick up your item, scan it, and walk out. All in a secure way that ensures no theft. This will make in-store pickup much more seamless and fit the expectation of convenience which drove the online purchase, to begin with.

Lastly, as physical retail evolves it will be interesting to see what Amazon does. It has been clear for a while that Amazon itself may need more physical shopping spaces and while they have experimented with this, it is not even close to where they will likely end up. How Amazon adapts to use physical space better will be a key part of their commerce growth story.

Overall, this is moving slowly, but it is moving in a somewhat predictable direction.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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